Home Capital Bolstered With Improved Inflows After Near Collapse

(Bloomberg) -- Home Capital Group Inc., the Canadian mortgage lender trying to rebuild itself with the help of Warren Buffett, is clawing back after near-collapse.

The Toronto-based company reported second-quarter results that showed a growing funding base, according to a statement late Wednesday. With its capital position improving, the lender said that uncertainty about its ability to continue as a going concern is resolved.

“Depositors are demonstrating their confidence in us through increased inflows to our Guaranteed Investment Certificates, and we are looking forward to putting that funding to work by increasing our lending activity," said Bonita Then, interim chief executive officer. “Moving ahead, we will continue to look at every opportunity, including more attractive and alternate funding sources, to build our platform for future growth."

Then will be replaced by Yousry Bissada, effective Thursday. The hunt for a new chief financial officer also is nearing completion, according to the statement.

Home Capital nearly imploded in April after a regulator accused executives of failing to disclose the extent of mortgage fraud, sparking a meltdown in its shares, a run on deposits and scrutiny over Canada's stretched housing market. Buffett's Berkshire Hathaway Inc. took a 20 percent stake in the company in June and could raise that to 38 percent as part of a C$2.4 billion ($1.91 billion) backstop. The billionaire investor is now the lender's largest shareholder, having bought the shares at about C$10 each.

The company took full responsibility for failing to meet disclosure obligations and agreed with three former executives to settle with regulators and investors. With a new CEO at the helm and Buffett's backing, Home Capital is trying to gain back consumer trust and rebuild its brand. Its shares have dropped 56 percent since the start of the year and its C$13.77 share price is below the C$19 high sparked by Berkshire Hathaway's purchase.

The company's liquidity was bolstered as high-interest savings accounts rose to C$186 million as of Aug. 1 from C$114.2 million June 29. The balance of guaranteed investment certificates increased to C$12.48 billion from C$12.15 billion in the same period.

Quarterly Loss

The lender reported a second-quarter loss of C$111.1 million, or C$1.73 a share. The average analyst estimate was for a loss of C$1.54 a share, according to a Bloomberg survey. It's the first quarterly loss for the firm since 1999, data compiled by Bloomberg show. The company attributed the loss to expenses of C$233.7 million tied in part to the liquidity crisis.

Home Capital said total mortgages under administration decreased about 5 percent to C$25.07 billion in the second quarter from the previous three months. Insured single-family mortgage originations fell 82 percent to C$84.2 million from the prior year, and traditional uninsured originations dropped 45 percent to C$756 million.

The company said it has been paying a premium rate of interest on new deposits that it will look to reduce in coming months, which may constrain deposit growth and mortgage originations.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Jacqueline Thorpe, Kara Wetzel